Crude oil, which was looking for direction after being stuck in a range, was provided with one last week. The trigger being the banking crisis which started with the collapse of the Silicon Valley Bank (SVB). This led to a sharp drop in the prices of the energy commodity over the past week.
The Brent crude futures on the Intercontinental Exchange (ICE) tumbled 12.4 per cent to close the week at $72.5 a barrel. Whereas the MCX crude oil futures (April contract) slumped 11.9 per cent and ended the week at ₹5,584 per barrel.
Therefore, technically, the bear trend has resumed, and we are likely to see further drop in prices.
Brent Futures ($72.5)
The Brent futures has slipped below the lower boundary of the range of $76-90, within which it has been trading since December last year. Notably, the trend preceding this sideways movement was bearish. Thus, last week’s breach of $76 denotes that the bear trend has resumed after a break.
From the current level of $72.5 the nearest support can be seen at $65. Nevertheless, given the current momentum, the contract will, most likely, decline below this and extend the fall, potentially up to $58. That said, there might be a corrective rally, possibly towards the price band of $78-80 before we see the next leg of downtrend.
MCX-Crude oil (₹5,584)
The April futures of crude oil witnessed a large drop in price last week. Bears dragged the contract below the support zone of ₹6,000-6,150 with ease. The contract found a little bit of relief as the support at ₹5,550 managed to stop the fall, at least temporarily.
Going forward, we might see a corrective bounce, which can take the price towards the support-turned-resistance region of ₹6,000-6,150. But there is also a chance for the crude oil futures to start falling right away once the session opens on Monday.
In the coming weeks, the price could dwindle to ₹4,850. Below that lies a significant support at ₹4,550. Thus, the price area of ₹4,550-4,850 is a broad demand zone from where we might see a rebound in price. Whether that will lead to a bullish reversal or not is something to wait and watch.
Trade strategy: As the trend is clearly bearish, traders can consider short positions. But since ₹5,550 is a support and there might be a corrective rally from here, we suggest staying on the fence for now.
Go short when price inches up to ₹5,800. Add more shorts if the contract goes further up to ₹6,000. Place stop-loss at ₹6,300. After initiating short, when the price slips below ₹5,500, tighten the stop-loss to ₹5,850. Further, when the contract goes below ₹5,200, the stop-loss changes to ₹5,550. Book profits at ₹4,850.